Wednesday Night #1323

Scribe’s Prologue
Individual feeling of entitlement usually take precedence over the collective sense of responsibility until a rare individual such as Al Gore piques the collective conscience, leading to united action. In this area, North America has lagged behind the European Union. As for governments, although composed of men and women representative of those in the country they govern, it is frequently not in their personal best interest to accord precedence to what is right over what is expedient.
Largely due to its historical evolution, the degree of centralization of our government does not permit federal policy to treat differently, such provinces of disparate wealth as Alberta and Newfoundland. Evidence of this can be seen in the difference in housing prices between Montreal and Toronto, a disparity that is not likely to change in the foreseeable future as housing prices are a function of the health of the local economy and the degree of affluence of the local citizenry.

Climate Change & the Antarctic
The Center for Biological Diversity wants to use penguins, the new charismatic species (“The March of the Penguins”, “Happy Feet”) many species of which are dwindling in number, to help make a larger point, that the birds are, at least in part, victims of global climate change.
Although the Arctic is much more in Canadian news, the recent voyage of Jean Lemire and his ship Sedna to the Antarctic has educated thousands of Québec visitors to the Biodôme and listeners of Radio Canada to the mystery and plight of that continent.

Arctic Sovereignty and Climate Change
Under the UN Convention on the Law of the Sea, which Canada ratified in 2003, coastal countries have the right to control access to the belt of shoreline along their coasts. Barring some exceptions, that belt is 12 nautical miles (22.2 kilometres) wide. But the waterways dividing some of the islands in Canada’s north are often more than 96.6 kilometres wide. That would seem to leave plenty of room down the middle for foreign ships.
A by-product of climate change is the slow disappearance of the Arctic ice cap, requiring a clear definition of and established sovereignty over Canada’s Arctic boundary. To that end, Prime Minister Harper has announced that the federal government will fund the construction of six to eight new Arctic patrol ships to help reassert Canada’s sovereignty over the North. The Arctic Offshore Patrol Ships will be Canadian-designed and built at a controversial cost of over three billion dollars, but will be unable to operate in the Arctic in winter,
Critics point to the fact that the Canadian shipbuilding industry has been non-existent since World War II because it could not compete in the world market. The enormous cost of these vessels is compared with to that of year-round operable ships currently being produced and used by other northern countries, as well as the temporary nature of the employment that would be provided to Canadians if they were built here.

The Northwest Passage
The melting of the Northwest Passage has been foreseeable but we have been slow to react. The question arises as to why we should be so interested in establishing our sovereignty in the Arctic Ocean; it is pointed out that the St. Lawrence Seaway, an international waterway, has never given rise to the same fervent, though belated, activity. The answer lies largely both in the as-yet-unknown mineral and perhaps petroleum wealth that lies under the ice and the unforeseeable width of the continental shelf in that area. The latter can sometimes be a very important factor in the ownership of the former.
The recent dispute over Hans Island, claimed by both Canada and Denmark is in itself, except politically, of little importance. As the Gibraltar of the Northwest Passage, it is, however, of great importance. The unforeseen appearance of possible wealth has a profound effect on the thinking of otherwise rational human beings. As the various actors jockey for position around unearthing, or perhaps deicing possible wealth, the Inuit claim, most probably with reason, that the current government of Canada is giving them no consideration in the distribution of the wealth in, under and surrounding land that is traditionally theirs’. Seemingly unconsidered, as well, in the establishment of sovereignty, is responsibility for the prevention of and reaction to possible pollution in a more easily navigable Northwest Passage.
On the first point, the Harper government, which seems curiously oblivious to a number of its international treaty obligations, should bear in mind that Canada is a member of the Arctic Council which includes seven other Circumpolar nations: Denmark (representing Greenland), Finland, Iceland, Norway, Russia, Sweden and the U.S. along with representatives of Arctic indigenous peoples. Among the programmes that come under the Council is the Arctic Monitoring & Assessment Programme which was designed to implement components of the Arctic Environmental Protection Strategy (AEPS). Additionally, there exists Canadian legislation, theArctic Waters Pollution Prevention Act.
Under the Act, there are useful definitions of the measurement of Arctic waters which are defined as ” the waters adjacent to the mainland and islands of the Canadian arctic within the area enclosed by the sixtieth parallel of north latitude, the one hundred and forty-first meridian of west longitude and a line measured seaward from the nearest Canadian land a distance of one hundred nautical miles, except that in the area between the islands of the Canadian arctic and Greenland, where the line of equidistance between the islands of the Canadian arctic and Greenland is less than one hundred nautical miles from the nearest Canadian land, that line shall be substituted for the line measured seaward one hundred nautical miles from the nearest Canadian land “.
Illustrating the lengths to which nations will go to assert sovereignty: Six colonies of coral have been planted around an uninhabited rocky outcrop, more than 1,000 kilometres south of the main islands of Japan. China recognises the rocks as Japanese territory, but says Japan cannot claim exclusive rights to the surrounding waters because they do not qualify as islands. Japanese officials hope to establish Japan’s claim by planting tens of thousands of corals at the site.

Climate Change & China
Aside from issues of quality control and corruption, China has serious environmental problems. No country can grow forever at the rate China is growing, consuming the energy and water resources at its current rate. [ Note: China may have already become the world’s biggest polluter – much earlier than expected. The Netherlands Environmental Assessment Agency said China’s CO2 emissions had risen by 9% last year, compared with 1.4% in the US.]
But the most critical problem is that although three hundred and fifty million citizens have benefited from their nation’s current affluence, over half the population has not yet done so but insists on eventually sharing in the fruits of China’s success. The one hope is that there will soon be a realization that productivity is affected by smog, environmental degradation and deteriorating health among the work force and rural populations. However, it must be recognized that their culture does not place the same value on human life and well-being as do western cultures.

The Economy
Canada
The global economy is much more resilient and stronger than anyone had imagined it would be and the Canadian economy is doing well. Bank of Canada has predictably, raised its interest rate and will continue to do so, barring unforeseen developments, perhaps 5% by the end of the year or at the latest, a year from now. Interest rates have been artificially low and it is better to normalize interest rates when the economy is strong than at a less propitious time. The purpose is to target inflation. As inflation can only be assessed retrospectively, it is predictable that the interest rates will gradually rise until some the economy has been, to the least extent, harmed. The other problem, shared with the European Union is the diverse regional/provincial economies, causing local rates of inflation to differ by region.

The U.S. economy has grown at a very fast pace and the hope is entertained that the continued growth will overtake the spiraling national deficit. David Walker, a former U.S. Comptroller General and current Chairman of the U.S. Intergovernmental Audit Forum, disagrees and warns of a bleak future, in part due to the aging of the population, as well as the ever increasing underfunded liabilities of Social Security and Medicare. It took some eight years for the Canadian government faced with a similar problem to convince Canadians of the necessity to act. However, with only eighteen months to go in his presidency it is unlikely that President Bush will take the political risk of acting in a similar fashion.

Private Equity
Although not new, a more recently talked about investment instrument is the private equity fund. So far this year, private-equity deals have accounted for nearly half of all merger and acquisition activity, based on dollar values, according to Thomson Financial. That’s up from less than a third in 2006. And this is at a time when M&A activity is hitting record levels.
These are funds that invest in control of entire businesses, either by becoming a majority shareholder or outright purchase in order to be in a position to de-list them, restructure or revive them and then re-list them to the benefit of the fund shareholders. Depending on the skill of the fund managers, this can be far more profitable than mutual funds and the yield, consisting largely of capital gains, is taxable at a lower wait. A disincentive, however, in order to retain maximum flexibility, is that investments by fund shareholders are usually blocked for a period of time and in the case of some of the equity funds that time can be as much as 18 years.
A recent article in the Economist warns that:” It may well be, however, that the peak of the cycle is close at hand. Private equity is inevitably a “feast and famine” business: when one fund can raise a lot of capital, they all can. Competition to buy companies then pushes up the price of doing deals, increasing the interest burden and reducing the returns for equity holders. More deals will be done this year, but they may not deliver the kind of returns that investors are hoping for, just as the late 1980s buy-out of RJR Nabisco, the emblematic deal of the era, proved a disappointment.
Gain is usually considered a function of risk. There has been a great deal of recent criticism over sub-prime mortgages in the U.S., but many people had been enabled to buy homes that they would have been otherwise unable to do had there not been investors prepared to take the risk of investing in such a risky instrument.

Europe
The face of old Eastern European countries is changing rapidly following their incorporation into the European Union. The historic countryside and villages of Romania’s Transylvania, Bosnia, Serbia are being bought out by investors from the U.K., Russia, Germany as well as other countries, and new highways are facilitating access to these historic vestiges of times long past. Not too many 5-star hotels, but one can be quite comfortable in small inns.
Incredible changes are taking place in France since the election of Nicolas Sarkozy to the Presidency. He has gained unanticipated support from the population with such unusual measures as his appointment of a truly dynamic cabinet and undermining the opposition by appointing its members to administrative government posts. There appears to be a new cohesion in Europe and a changed relationship with the U.S., one that is not receiving much attention in the North American press.

THE PROLOGUE

Last Wednesday brought a delightful surprise with the welcome return of Louise Guay, President of My Virtual Model, after a very long absence. She shared with us some of the exciting developments at MVM and news of the 2007 World Conference on Mass Customization & Personalization (MCPC) organized in collaboration with HEC and the MIT Media Lab.

Two Wednesday Nighters have brought to our attention thought-provoking items (both from the Washington Post) which point to the weakness of the Canadian partisan political system in the government’s unwillingness/ inability to recruit the right person for a job if that person belongs to the wrong party (or no party), and lack of ability to think or consult outside the box on public policy and/or international issues.
The first, sent by Sabra Ledent, relates to Nicolas Sarkozy’s urging the International Monetary Fund to name Dominique Strauss-Kahn as its managing director.
“There is no exact American metaphor, but imagine if Bush had pushed for a prominent liberal Democrat — Al Gore or John Kerry perhaps — to head the World Bank. Imagine further that the president had seriously consulted with his political adversaries.” With little effort we might replace President Bush’s name with Stephen Harper, and the names of potential Canadian nominees to cabinet or prestigious international posts.
In that respect, we admire Jean Charest’s naming of Lucien Bouchard and Pierre Marc Johnson to head their respective commissions.
The second, thanks to Catherine Gillbert, is the piece by Walter Isaacson of the Aspen Institute recalling the “burst of creativity” with which our leaders responded to the threat of Soviet communism, resulting in the creation of the Marshall Plan, the World Bank and IMF, and (particularly interesting to us) revamped communications tools. This, the author points out, is in sharp contrast to the lack of creative, consensual approaches to the defeat of terrorism. While he calls on the U.S. Democratic presidential candidates to formulate their visions, he might equally challenge many western leaders, not to mention the UN, to address the threat of terrorism, along with climate change, poverty and other global social issues – in the same spirit that prevailed some sixty years ago.
Taken together, the two articles underline a great deal of what is wrong in the way the world is being run today, whether at the highest levels of government, public institutions, or organizations. Partly, this can be blamed on the partisans (militants) who surround leaders and fend off any and all who might introduce new and different ways of thinking. Partly it must be blamed on those who, like the Great Decider, believe they have little or nothing to learn from others, and that their one goal in life is self-advancement as opposed to contributing to the greater good (or who equate the two). We therefore suggest that these two pieces be required reading for any and all leaders and would-be leaders of government at all levels, institutions such as hospitals (MUHC anyone?) and organizations who propose to address any area of public policy.
Which brings us to more local topics that also show a sad lack of “bursts of creativity” generated by consultation with all those concerned (stakeholders). Shall we start with what appears to us to be a wasteful decision on Canada’s new not-exactly-ice-breakers? This will be an all-Canadian designed and built ship, although we understand that the Finns and Norwegians build ships that could have equally served our purpose. We have read that Canadian military ships can only be built in Canada for security reasons, (so what about the subs bought from Britain?) but why build in the additional design delay – why not, if we want to keep our shipyards busy, build under license? Along with the Toronto Star, we note the absence of any public cost/benefit analysis of the billion-dollar purchase, thus will likely never know whether the Nordic option was given a chance.
We could point to criticism of the latest plan from the Mayor of Montreal, this one the 20-year, $8.1-billion transportation plan One cannot help but wonder who put this together and why they couldn’t have consulted early with knowledgeable people outside the municipal government. Of course, whenever we think of Montreal’s sins in this respect, we come back to the Mega-merger and the apparent inability of the politicians and bureaucrats to look at successful cities like Boston which have achieved their success without feeling the need to absorb the small surrounding municipalities. And that topic brings us to the latest salvo fired at Montreal by no less than 3 organizers of major annual events: The Grand Prix, Jazz and Just for Laughs Festivals, all of whom are complaining that Montreal’s bloated bureaucracy – and greed – make it ever harder to put on a good show. As the Gazette’s Henry Aubin points out: remember when the Bouchard government and Montreal’s Board of Trade said the new megacity would produce a streamlined bureaucracy that would minimize red tape. The enlarged city would naturally give rise to strong political leadership. Only by merging, they said, could Montreal Island become one of the 21st century’s dynamic cities. We rest our case.